Public Bill Committee

[Mr. David Amess in the Chair]

Clause 17

Licences

Question proposed, That the clause stand part of the Bill.

Malcolm Wicks: Good morning to you, Mr. Amess, and to the Committee on this sunny day. We discussed much about carbon capture and storage last week, but we now have the opportunity to consider it in more detail. While clause 16 will prohibit the storage of carbon dioxide without a licence to ensure that such storage is carried out in a safe and responsible manner, clause 17 will give the Secretary of State, or an authority to which the licensing function has been transferred under clause 33, the power to license the carbon dioxide storage-related activities.
In addition to such a licence, a lease or an authorisation in respect of the relevant offshore space to be licensed by the Secretary of State must be granted by the Crown Estate, because it has ownership rights within 12 nautical miles of the territorial sea and relevant rights—possibly up to 200 nautical miles—will also be vested in the Crown under clause 1. The Crown Estate will grant leases or authorisations on commercial terms to operators for the storage of carbon dioxide within those areas. Such leases or authorisations will prescribe the geographical space in which the CO2 can be stored, as well as specifying the period during which the site can be utilised.
The clause will ensure that the areas covered by the licence and the Crown lease can be easily co-ordinated. In the absence of such co-ordination, there would be a risk, for example, that the licence would continue to apply when the lease had expired. In such circumstances, the operator would have to discontinue its activities, as it would be on the Crown Estate’s land without the necessary authorisation from the Crown Estate.

Martin Horwood: At an earlier sitting, the hon. Member for Southampton, Test made some interesting points about the Crown Estate and how much co-operation was guaranteed in the delivery of policies such as the licensing regime from the Crown Estate. Has the Minister had time to reflect on the issues raised by the hon. Gentleman, as they seem directly relevant to the clause?

Malcolm Wicks: I am still reflecting on such issues and have asked for advice. I am minded to write to my hon. Friend the Member for Southampton, Test with some detail, a copy of which I shall give to all members of the Committee.

Stephen Ladyman: Good morning, Mr. Amess. I want to make a general point about the whole chapter, and our discussions on the clause is probably the most appropriate place to do so. I refer my hon. Friend the Minister to our final evidence session and question 196, which was asked by my hon. Friend the Member for Copeland. It received an answer from Mr. Chris Mansfield, who said:
“In principle, if you look at the provisions in the Bill and the proposals put forward by the European Commission in a draft CCS directive in January, the intent, which is very much supported by industry, is that that is a liability that should be taken on—at an appropriate point in time—by the state.”—[Official Report, Energy Public Bill Committee, 19 February 2008; c. 102, Q196.]
He goes on to say that he does not think that it is reasonable for businesses to have to assume the liability for ever, that businesses do not last for ever, but that the state goes on, so the liabilities must fall eventually on the state.
As a consequence of that intent, the clause and the related clauses in the chapter have been drafted in benignly. The business is regarded as benign and one that we wish to encourage. We do not wish to put barriers in its way, as we do not want to scare people away from it. I contrast that point with the later chapter that deals with nuclear energy and the liability that comes from the necessity to store nuclear waste and to have a decommissioning proposal. That chapter is written with an entirely different tone, along the lines of, “This is a very dangerous business. You’re in it to make money, and we’re going to lock you down and make sure that you pay every penny.” It includes clause 60, which I call the “We’re going to hunt you down to the ends of the Earth to make sure that you pay up” clause. It also includes clause 62, which I call the “Don’t you think you’re going to get tricky with us, because we’ll come after your neighbours and your friends as well” clause. Effectively, it is written in a completely different tone to this package of clauses, including clause 17, which is written from the point of view that the matter is benign.
Yes, this is a benign business, but people will be in it to make money. It involves the capture of a dangerous material that will have to be stored for a very long time, for which people will have to be responsible for a long time. Although I entirely accept the benign tone of the chapter, I raise the point now because when we consider the chapter on nuclear energy, the decommissioning of nuclear energy resources and long-term storage, I will wish to talk to my hon. Friend the Minister about the difference in tone in that chapter and ask whether we have got it right, or whether it would be better to make amendments to encourage investment in nuclear energy, in the same way as this chapter is phrased to encourage investment in carbon capture and storage.

Malcolm Wicks: That was an interesting speech. When examining aspects of climate change and energy policy, I often reflect that if the well-known saying of Harold Wilson that “a week is a long time in politics”—we have had one or two of those weeks recently—is at one end of the continuum, looking at targets for CO2 reduction, the effects of carbon emissions on our planet and the longer term issues about CO2 storage and the storage of nuclear waste is right at the other end. Here we are in 2008, trying to do our best to make policy for decades and centuries ahead—perhaps millennia ahead as regards CO2 storage and a long time ahead for nuclear waste—so my hon. Friend the Member for South Thanet has raised an interesting point.
Nuclear energy is, or should be, a profitable business. It is not unreasonable to ensure that the companies in the business pay the full costs. We will have some debate about the full costs, and how we calculate them is a perfectly legitimate discussion to have. However, we have always recognised that there comes a point, when the geological repository is sealed, when the state takes over that responsibility for the long term—no one else can. No one can quite predict what the state will look like in half a million years.

Charles Hendry: You will be out of government.

Malcolm Wicks: It is that kind of time sequence that we are planning, yes.
The reason why Governments such as our own have to find taxpayers’ money for demonstration projects is that there is, as yet, no money to be made out of CO2. It is not yet a profitable business, although it could well become a commercial business in the future, and it will need to. Hence, perhaps, the benign tone that my hon. Friend refers to.

Stephen Ladyman: If my hon. Friend is not in power in half a million years, I at least expect there to be a large portrait of him on the Committee wall, staring down at the people who follow us. He is absolutely right that carbon capture and storage is not yet a profitable business, but nobody is proposing that the Government subsidise it for ever. It is intended that it will become a profitable business. It is a good business, we want people to be in that business, but nuclear energy has an equally important role in reducing carbon dioxide and fighting climate change. However, just as people in that industry need to be responsible for their liability, so do those responsible for carbon capture and storage. I want to see an even playing field for the two industries.

Malcolm Wicks: I take my hon. Friend’s argument. Last week, I implied that, in my judgment, the nuclear clauses of the Bill will not go through on the nod—that is my political instinct—and I am therefore sure that there will be an opportunity to discuss those matters. To sum up from that interesting intervention: there are things in common between CO2 and nuclear in that the commercial entity must take responsibility for eventual decommissioning. Similarly, in the very long term, only the state can take responsibility. However, there are also differences, which we will no doubt return to.

Question put and agreed to.

Clause 17 ordered to stand part of the Bill.

Clause 18

Requirements relating to grant of licences

Question proposed, That the clause stand part of the Bill.

David Amess: With this it will be convenient to discuss new clause 18—Provision for regulations for a carbon dioxide performance standard on electricity generating stations —
‘After section 36B of the Electricity Act 1989 insert—
“36C Generating stations: carbon dioxide emissions performance standard
(1) The Secretary of State may by regulation prescribe a carbon dioxide emission performance standard applying to any generating stations requiring consent for construction or extension under section 36.
(2) Regulations under this section must prescribe a carbon dioxide emission performance standard that is in no case greater than 400 kilograms of carbon dioxide per megawatt hour of electricity generated at any individual generating station.
(3) Regulations under this section may prescribe—
(a) the ways in which proposed generating stations are able to demonstrate compliance with the carbon dioxide emission performance standard including by way of carbon capture and storage;
(b) the information that must be submitted with an application under section 36 to demonstrate compliance with the carbon dioxide emission performance standard;
(c) how compliance by generating stations that have demonstrated compliance with the prescribed performance standard and are granted consent under section 36 shall be monitored and enforced, including appointing and conferring powers on an appropriate agency to carry out such monitoring and enforcement;
(d) any sources of electricity generation that are deemed to be compliant with the carbon dioxide emission performance standard including electricity generated from renewable sources.
(4) The Secretary of State shall not grant a consent under section 36 for any generating station that does not comply with any prescribed standard.
(5) Before making regulations under this section (including setting the level of performance standard), the Secretary of State shall consult—
(a) electricity generators;
(b) the Gas and Electricity Markets Authority;
(c) the Gas and Electricity Consumer Council;
(d) the Environment Agency with regard to England and Wales;
(e) the Scottish Environmental Protection Agency with regard to Scotland;
(f) other persons or bodies representing the interests of the electricity industry, local government and the environment, and
(g) any other persons or bodies as he may consider appropriate.
(6) The Secretary of State must make regulations under this section no later than 12 months from the date on which this Act is passed.
(7) Any regulations under this section shall not be made unless a draft at the instrument containing it has been laid before, and approved by a resolution of, each House of Parliament.
(8) In this section—
“carbon dioxide emission performance standard” means a standard prescribed by regulation setting the maximum amount of carbon dioxide that may be emitted from a generating station.”’.

Malcolm Wicks: I am looking forward to hearing about new clause 18, but first, I will speak briefly by way of introduction to our clause. The clause will enable the Secretary of State to make regulations by the negative procedure that prescribe the circumstances in which carbon dioxide storage licences may be granted. The Liberal Democrats worry about the burdens placed on the hard-working Secretary of State, but he has some support, so I do not want them to get too anxious.
The clause states that the regulations may prescribe who may apply for licences, what information would have to be supplied by the applicant, the financial security arrangements and other requirements. Having such regulations in place will help to ensure that only appropriately qualified and financially sound operators engage in CO2 storage activities and that certain conditions are satisfied before a licence to commence operations can be obtained. I now look forward to hearing the arguments in favour of new clause 18.

Martin Horwood: I shall first address the stand part debate, particularly in respect of clause 18(2)(e). The impact assessment signed by the Minister raises an interesting question on page 19 about carbon caption storage falling within the European Union emissions trading scheme. Future leakages or losses of carbon dioxide from geological or other storage facilities will attract financial penalties, because permits are technically required for such carbon emissions.
As the Minister has pointed out, we are talking about very long-term prospects. He almost issued the phrase, “A millennium is a long time in politics”, and I wish that he had; as it would have been a good one. I want to ask about the licensing regime and whether the future obligation not to lose carbon dioxide from storage facilities will be incorporated within the licensing regime. From the impact assessment, it seems as though it should be, but it is obviously a challenge to design that licensing regime to cope with the very long time scales that might be involved.
The hon. Member for South Thanet was right to draw a comparison with the nuclear clauses, although we would make the obvious distinction between one industry that we would rather discourage and another that, in this case, we would rather encourage. That legitimises a different approach. After all, when instantly released, CO2 does not start poisoning anyone or making their hair fall out.

Stephen Ladyman: First, I take issue with that final statement. If there was ever a massive release of CO2 from one of the carbon storage places, it would be catastrophic. Secondly, the Liberal Democrat position might be to discourage nuclear energy. If these two chapters had been phrased in a distinct way, I could understand it. My position and that of my hon. Friend the Minister is that we see nuclear energy as having a positive and benign role in fighting climate change. So, in those circumstances, the two chapters should be written on a more even keel.

Martin Horwood: The hon. Gentleman makes a perfectly legitimate point. We look forward to the Minister’s further comment.
The new clause addresses another crucially important issue in terms of carbon capture and storage. For many organisations and observers of our debates, there is a glaring omission: for all the commitments to store CO2, once it has been captured, there is nothing in this Bill that mandates its capture or puts in place a regime with powers for the Secretary of State to enforce, strongly encourage or incentivise its capture.
In one of the evidence sessions, the hon. Member for Copeland asked whether we were betting the house on carbon capture and storage and whether it would be the cornerstone of future energy policy in tackling climate change and without which the whole project might fail. To be honest, the answer could be yes. We hope that energy efficiency and, in some cases, nuclear power or at least renewable energy, will do something to close the energy gap, but they will all struggle to do that within the time scales we have in front of us. Carbon capture and storage is therefore a vital component of the campaign to meet our emissions reductions in the medium term.
If a new generation of coal-fired power stations such as Kingsnorth is to go ahead, that cannot be done without a regime in place that would at the very least enforce carbon capture and storage as soon as it is available. The sooner that regime is enabled, the better for industry and for investors to plan for it.
The risk is that we commission new power stations and then later, once the technology is up and running, we spring the regulatory regime on the industry. That is the kind of thing that industry persistently tells us is bad for investment and future planning. The clear direction of the Stern report is that action now to incentivise and make clear the strategic direction of the Government provides certainty for investors and reduces costs in the long term. We need to lock ourselves into a regime that will make carbon capture and storage an inevitable part of any new generation of any fossil fuel powered stations.
There is a good precedent. California has introduced a greenhouse gas emissions standard, including a facility-based element that targets particular power stations. The standard sets a level of carbon dioxide emissions per megawatt-hour. In new clause 18 we suggest a level of 400 kg of carbon dioxide per megawatt-hour. That figure is not plucked out of the blue; it is based on the current performance standard of the best modern combined-cycle gas turbine power station. That should be the baseline against which the Secretary of State will have the power, as the technology comes on stream, to reduce and enforce lower emissions of carbon dioxide from fossil fuel powered stations.

Malcolm Wicks: I was struck by the phrase, “as the technology comes on stream”. I thought that was significant, so will the hon. Gentleman say more about that? At first sight, I thought his new clause might be saying that no coal-fired power stations would be allowed until they could be capture-ready. Is he saying this power would come in only once CCS had been proven?

Martin Horwood: I am grateful for the Minister’s intervention. Perhaps I have not made myself sufficiently clear.
We need to set aside the debate as to whether Kingsnorth goes ahead without carbon capture storage technology in place right now. Many of us might be sympathetic to that but it is outside the remit of the clause in front of us and perhaps even the Bill. We are seeking to establish a clause that would give enabling powers to the Secretary of State and would give him the mechanisms with which to enforce carbon capture and storage, at the very least as the technology becomes available. In other words, a clear strategic direction and a clear direction of travel for industry and investors would be set out. They would be very clear that if and when the technology became available—and we all hope it will become available sooner rather than later—the Secretary of State would already have the powers in place to reduce acceptable amounts of carbon dioxide per kilowatt-hour and to enforce an increasingly stricter regime so that it became cripplingly expensive to run a fossil fuel powered power station without carbon capture and storage.

Charles Hendry: I am listening to the hon. Gentleman with great interest, may I take him to the actual wording of his new clause? Subsection (2) says:
“Regulations under this section must prescribe a carbon dioxide emission performance standard that is in no case greater than 400 kilograms of carbon dioxide per megawatt-hour of electricity generated”.
That is a very prescriptive approach and does not seem to tie in with his talking about “when this technology becomes available” and “when it comes on stream”—the two do not seem to tie in together.

Martin Horwood: Again, I must have not quite sufficiently explained my thinking because I thought I had addressed that issue already. The number has not been plucked out of the sky and I have some sympathy with the view that it should not be too prescriptive—that is something we have argued in other clauses.
The number is based on the Californian model of taking the best emissions performance of the best modern power stations. In this case, modern combined-cycle gas turbine power stations emit 400 kg per megawatt-hour, so that is where the standard has come from. The new clause says we should do no worse than we do at the moment and would give the Secretary of State the power, in due course, to reduce that level on a progressive basis, as the technology allows. It sets out the opportunity for the Minister to emulate Governor Schwarzenegger, to become “The Terminator” of dirty coal-fired power and to be the champion of clean coal and gas-fired power stations in the future.

Charles Hendry: I will talk firstly to new clause 18 and then ask questions about the clause as it currently stands. No doubt the Minister “will be back” in a Schwarzenegger way to respond formally to the points that have been put forward.
I think there is mixed thinking in what we heard just now from the hon. Member for Cheltenham. This approach has been taken in California and the companies there know that they cannot build a power station unless they are going to adhere to very strict standards of emissions. However, they are part of a nationwide structure so they can always import energy from other parts of the US if coal-fired power stations do not get built in California. I see the attraction of having an absolute limit; it gets us away from the target culture, and as the Minister will have heard me say before, I think the target culture is fundamentally flawed because it just means that, in 15 years, somebody else can come along and explain why the target was not met. An absolute limit does not provide that wriggle room, but there is an inherent contradiction in what the hon. Member for Cheltenham has been saying.

Martin Horwood: The hon. Gentleman seems to be criticising the Californian system, but the Californian level is established very specifically at 1,100 lbs of CO2 per megawatt-hour, which is about equivalent to 500 kg, and it is on a state-wide basis. It does not depend on any national scheme, because there is not actually a national emissions trading scheme in place in the US yet.

Charles Hendry: I am not criticising the Californian system—it has different sources of energy from those we have available to us—but I am not sure it is immediately applicable to us. I am particularly intrigued by some of the language. The hon. Gentleman said that Kingsnorth would be built, but on the condition that carbon capture and storage would be implemented “as soon as it is enabled”. That would mean asking those who are investing in that power plant, E.ON, to build a power plant without knowing what the costs would be and probably assuming that the technology would be available, but certainly not knowing whether Government support would be available to help them meet the costs. My expectation is that if Kingsnorth were to have carbon capture and storage technology built in from the outset, it would add an extra £400 million or £500 million to its construction costs. The investors would have to gamble that they might get some of that money back from somewhere. They would not do that; they are part of a global company, so they would go and invest in other forms of energy elsewhere in the world. We would therefore find that the hard-line approach that the new clause suggests would drive away investment in some areas.
I have great sympathy for the concept that we want carbon capture storage to be applied to Kingsnorth but I do not believe that the new clause will achieve that—it is far too prescriptive. The hon. Gentleman has also got to tell us how we are going to fill the energy gap.

Steve Webb: The specific example of Kingsnorth is very germane to this new clause. Could the hon. Gentleman verify his own view on the criteria—should it be a cap of the sort envisaged here? If he were Secretary of State, would such a project go ahead without any conditions? How would he try to achieve these goals?

Charles Hendry: I find the prospect of Kingsnorth without carbon capture storage quite horrific. It is clearly a cleaner technology than the old coal-fired power stations. The idea of building a massive new fleet of power stations when we could be using other technologies or when CCS could be involved would be profoundly disturbing. I therefore wish very much that CCS is part of the Kingsnorth project and that will no doubt be part of the bidding in the pilot scheme. We will have to see what the Government decide in due course but if Kingsnorth does not get financial support under the pilot scheme, the Government will have to address the problem. Without such support at the outset, I doubt whether the investment would go ahead.
We will need at some point to discuss how we fill the looming energy gap. The Liberal Democrats are not in favour of nuclear power; they are not in favour of some of the new-build coal that is being suggested; they are not keen to have imported gas; and Liberal Democrat councils are stopping wind applications. Are we going to go backwards? We are going to have a rather dark, cold future, presumably sitting in a hut, waiting for somebody to rub some sticks together and invent some heat for us.

Stephen Ladyman: Will the hon. Gentleman give way?

Charles Hendry: I will give way because I believe that Kingsnorth will be built adjacent to the hon. Gentleman’s constituency, or at least very near it.

Stephen Ladyman: I was going immediately to declare that interest: Kingsnorth is not very far away from my constituency in Kent and many jobs are going to be dependent on it. Like the hon. Gentleman, I very much hope that it will include carbon capture and storage. However, if we did something that would discourage the development of the new Kingsnorth, would that not mean that the existing plant—which is dirtier and produces far more CO2—is likely to be further extended into the future? It is in the interest of the environment that we give E.ON the support it needs to develop these new technologies and, in addition to that, press it to include carbon capture and storage at a later date.

Charles Hendry: My understanding is that the current facility has to close down because of EU requirements in any case and that the new plant proposed by E.ON would be much cleaner than the old one. However it still would not be acceptable unless CCS can be involved at some stage. That is why the way in which the pilot project is going to go ahead will be fundamental to deciding whether that happens; coal can have a future, but only if carbon capture storage can be made to work. My concerns about this new clause is that, by laying down at this stage such a prescriptive approach, people will be asked to invest without knowing what the costs are going to be and without knowing what Government support might be available. In those circumstances they will simply walk away.

Martin Horwood: I cannot let the hon. Gentleman’s criticism of Liberal Democrat policy remain unanswered. He asserted that we are against the import of natural gas. I do not remember having said that and nor do I remember any of my hon. Friends saying such a thing. The import of natural gas may be not be desirable, but we certainly would not be in favour of stopping it. In terms of carbon capture and storage for fossil fuel powered power stations, he seems to take a view that is supported by comments from the right hon. Member for Witney (Mr. Cameron). If the hon. Gentleman rejects the new clause on technical grounds, I would therefore be interested to know what he suggests in its place.

Charles Hendry: If I have misunderstood the Liberal Democrat position of expressing concerns about being heavily reliant on imported gas—in particular, the proportion that comes in from Russia—I apologise if I misinterpreted their stance.
We have said that it is clearly desirable for carbon capture and storage to be part of the pilot project at Kingsnorth. If it is not part of that project, the Government have to find another way of supporting it. If the CCS plan is not involved from the outset, the environmental costs of Kingsnorth are almost too great to contemplate. However, new clause 18 is not the right way to deal with that. Setting such a strict target—or such a prescribed limit—at this stage would drive away investment, rather than enabling the partnership approach to develop.

Steve Webb: This has been a very worthwhile debate, and I just want to add a couple of brief comments and questions. I am interested in an issue that has arisen, which I would call double jeopardy: if there is leakage from stored carbon, my understanding is that a permit is needed under the emissions trading scheme—so, effectively, it must be paid for—but can the Minister clarify whether a separate penalty regime will apply? I have been looking through the clauses in this series, and there are all sorts of penalties for not keeping the books properly, but I am slightly confused about whether there is a penalty for allowing CO2 to leak. The penalties do not seem to include one for actually letting the stuff out. Is that because a permit is needed under the ETS and there is the penalty, or is there a penalty in the clause in respect of licenses? I am unclear about that.
More generally, on giving the go-ahead to new plants, our new clause includes a specific figure as an upper boundary. If a figure were not put in the new clause, it would simply say that the Minister could set any ceiling. If the Minister set a very high ceiling, it would be a non-binding constraint and have no impact. We did not think it sensible to table a new clause that would have no impact if the Government just decided that it would not have one. We are trying to beef up what the Government do. That is why we have included a specific figure.
It seems to me that the right approach to new applications, whether at Kingsnorth or elsewhere, is that we first need a public inquiry, as it will be the first of many and this is of strategic national importance. I hope the Minister will tell us whether or not we will get an inquiry. We should not give the go-ahead in the hope that the technology is on stream, although many of us have understandably expressed such hopes. We should not give the go-ahead for an indeterminate future point at which the stuff that is going to be spewed out might be captured. We should not give the go-ahead with that degree of uncertainty.
Personally, my judgment would be that the go-ahead should not be given to any new coal-fired power station until there is a determinate period in which carbon capture can be applied. Indeed, the requirement should be that, when the go-ahead is given, the power station is CCS ready in a very specific sense—ready for a technology that we know will work in a realistic time scale. That seems to be the right way forward.
In response to the hon. Member for Wealden, I suggest that the industry would then have certainty; it would know the time scale over which it had to put CCS in place; it would know the technology required to implement it; and it would have some idea of cost, because the technology would be near market. That is probably the right balance to strike. I hope the Minister can clarify the Government’s strategic approach, because our new clause is all about the limits and conditions on a new generation of coal-fired power stations, and it would be helpful to get a steer at this point from the Minister on the Government’s strategic approach.

Malcolm Wicks: This has been a useful discussion. May I say from the outset that it would be inappropriate for me to comment on any live application for a power station—or indeed on the timing of any decision by the Secretary of State. The Secretary of State operates in a semi-judicial world in that respect, and I am afraid that our hands are tied. Obviously, for any application, the Secretary of State would want carefully to consider all representations.
The licensing regime for CCS will be flexible enough to cover liabilities for leaks, among other things. The European Union’s ETS liabilities will therefore also be covered for as long as the licence is in place. After that—as I think we were teasing out earlier—the liability in the long, long term will have to pass to the state.
I was also asked whether, if there were a leakage—of course, we hope there will not be any—there is a penalty regime in the Bill. I am advised that clause 19 explains what can be contained in a licence, although the list of terms and conditions is not exhaustive. We expect requirements to remedy and to notify of a leak to be included in every licence, as standard. Failure to notify of a leak will be a criminal offence under clause 22. The operator will also be liable for damages under the environmental liability directive.

Steve Webb: Clause 19(3) contains a list of the things in the licence, but the Minister appears to be saying that leakage is not yet included. I am puzzled about why that was not put in the Bill; it seems to be fundamental to a licence to store carbon.

Malcolm Wicks: I have said that the list is non-exhaustive, and we expect such things to be included, but perhaps I can say more about that in the debate on clause 19. Committee sittings may be exhausting, but the list is non-exhaustive.
I have listened carefully to the hon. Member for Cheltenham speak on the new clause, but I have also listened to the hon. Member for Northavon, and I am not sure whether there was consistency. I think of myself as a conviction politician, but I have a weakness for searching for consensus. The consensus is—surely, this is a happy situation—that we all want carbon capture and storage to work, because of its importance to contributing to CO2 reductions. We are all frustrated that CCS is not on the shelf, ready to take off and apply to fossil fuel power stations. The issues that confront us are probably about timing, and of course, energy supply and security are crucial.
I see myself as more of a spectator in the discussion between the two Opposition spokesmen, and as the only Minister on the Committee, I welcome that distraction from time to time. I enjoy it, and it is often interesting. Nevertheless, supply is important. The climate change and energy world is full of sometimes well-qualified people who say no to things—they are the Dr. Nos. They say no to nuclear and no to fossil fuel power stations, and they say yes to other things in principle. However, I am afraid that the hon. Member for Northavon is right. I use the word “afraid” because the Liberal Benches are often full of Liberal MPs who, in practice, say no to wind farms in their constituencies. The simple truth is that, unless we are going to jeopardise our security of supply and unless we become even more reliant on gas imports than we will need to be anyway, we must start to say yes to things.
I do not think therefore that it is unreasonable if, either during debates in Committee or on the Floor of the House, serious political parties say serious things about where the stuff is going to come from. That is a perfectly legitimate point that the hon. Gentleman raised. I was searching for consensus and I have spoilt it, but there we are. The consensus is that we want carbon capture and storage to work, but we have to confront a timing problem. It is not unreasonable that we have different views about that problem.
I can understand the motivations behind the new clause. I shall explain why we have not included provisions in the Bill similar to those recommended by the hon. Members for Cheltenham and for Northavon and why we believe that it will not be appropriate to do so. Section 36 of the Electricity Act 1989 requires a development consent to be obtained from the Secretary of State in England and Wales and from the Scottish Executive in Scotland for all new power stations of 50 MW or more.
The new clause suggests that no such consent should be granted unless the relevant power station is capable of meeting a prescribed standard for the emission of greenhouse gases. Although I am still confused about the timing of when the new power will come into force, but perhaps that is a detail. The Government do not believe that prescribing emission limits in that way is the most effective route to low-carbon power generation. Such an approach goes against the Government’s fundamental approach to energy policy, as set out in the 2007 White Paper. In the UK’s competitive market framework, the choice of fuel and technology for a new power station is a matter for the energy company. The Government’s role is to set the right framework to incentivise private sector investment, consistent with meeting our energy goals of tackling climate change and providing energy security.

Martin Horwood: Will the Minister give way?

Malcolm Wicks: Yes, although I have a lot more to say, which I am sure will meet the hon. Gentleman’s requirements, but of course I give way.

Martin Horwood: I am grateful to the Minister for giving way. He is doing a good job of answering many of the points that we have raised. If not under this regime, how does he imagine that existing gas and coal-fired power stations will be incentivised to adopt carbon capture and storage? Is that set out in the Bill?

Malcolm Wicks: By some happy coincidence, I am going to touch on that in the next few pages of my speech. It is the Government’s view that the EU ETS has an important role to play in reducing greenhouse gas emissions from new and existing power stations. We believe that it is the most cost-effective way to make the transition to a low-carbon economy.
The EU ETS is a market-based mechanism that sets an overall EU cap on carbon dioxide emissions. It operates by setting an absolute cap on the CO2 emissions that can be emitted by the installations covered by the scheme—for example, a cement factory or a power station. The cap on emissions is distributed to installations via allowances that are either given or auctioned off to individual installations. The allocations of allowances specify how much carbon dioxide may be emitted by each installation. Installations that emit less carbon dioxide than their allowance and therefore have an excess can sell it on the market, and those that emit above their individual allocation must purchase the allowances from installations with a surplus.
We believe that the EU ETS is the best way to tackle this issue for two reasons.
 Martin Horwood rose—

Malcolm Wicks: Would the hon. Gentleman mind if I make some progress? First, the in-built scarcity in allowances that results from the imposition of the cap creates a price for carbon, thus encouraging investments in generating technologies that emit less carbon dioxide, which is the same objective as that in the new clause.
Secondly, the EU ETS provides flexibility for the market to identify the most cost-effective way to reduce emissions. The ETS allows companies to use credits derived from the so-called Kyoto flexible mechanisms—the clean development mechanism and the joint implementation mechanism—to offset carbon emissions in the UK. Thus, where this is cheaper than reducing emissions in the UK, project developers will take action to set up emissions-reducing projects in the developing or transition countries and will sell the emission reduction credits derived from such projects to entities covered by the EU ETS.
Given the flexibility in the EU ETS, we can therefore reduce emissions at the lowest economic cost, while facilitating technology transfer to developing countries. The new clause would be to remove that flexibility. For example, in the short term, an operator may build a coal power station in the UK and buy allowances through the clean development mechanism. With the benefit of a proven technology, such as CCS, the same operator may then choose to retrofit CCS and benefit from the emission reductions. Carbon emission reduction is a global objective and we need to deliver it through the most cost-effective means. That is a lower cost way of reducing emissions, and I believe that it is right that developers should have that option.

Martin Horwood: I am grateful to the Minister for indulging me again by giving way. I want to question him before he sits down and allows me to speak substantially on the issue. He is describing the process by which carbon pricing is achieved through the emissions trading scheme. That was quite specifically addressed by Sir Nicholas, now Lord Stern in his report. He said:
“Carbon pricing alone will not be sufficient to reduce emissions on the scale and pace required”.
The reason for that is pretty clear, from the way in which the ETS is operating in practice. The carbon price that it is generating is not sufficient to drive investment into clean technologies. This is an explicit problem with emerging emissions trading schemes and one with which we are all familiar. Does the Minister now disagree with Sir Nicholas Stern’s assessment that something more than simply an emissions trading scheme and carbon pricing is required to drive forward such technology?

Malcolm Wicks: I agree with Nick Stern’s analysis, although I want to say a little more about the ETS. It is part of the answer and becomes a more significant part if the carbon price increases as we become tougher in phase 3 of the ETS. I certainly concede that, as far as we can tell at the moment and for the foreseeable future, it is not the whole answer, just part of it.
We have outlined our commitment to consolidating the EU ETS in the energy White Paper and we are currently working closely with the Commission to ensure that the revised EU ETS directive continues to play a key role in ensuring that the EU and the national emissions reduction targets are reached. I hope that members of the Committee agree with the Government’s view of the ETS as a cost-effective means of delivering our goals in achieving emissions reductions. It does that while, at the same time, allowing progress towards achieving all our energy policy goals, including maintaining reliable supplies.
As the Committee will be well aware, without new electricity capacity, the United Kingdom potentially faces a growing gap in its generation capacity. The hon. Member for Cheltenham has made that point. It is significant that nine fossil fuel power plants, comprising 12 GW of capacity, which is about 20 per cent. of peak demand this year, are scheduled to close by the end of 2015. Six nuclear power plants with the combined capacity of about 6.3 GW are also scheduled to close by 2016, with another 4 GW in later years.
We are not therefore in the position to rule out key elements of the UK’s energy mix, which is what the hon. Gentleman’s new clause would effectively achieve by setting greenhouse gas emission standards at approximately half of what is currently emitted by a new super-critical, coal-powered station. Currently, coal accounts for about one third of our electricity supply, but that proportion will reduce during the next five to 10 years as stations close. Coal-fired electricity generation plays an important part in reducing and managing the risks of growing dependence on gas, such as in the winter of 2006 when gas supplies were tight and prices were extremely high, and the market was able to reduce gas emissions by generating electricity from coal. Indeed, during that winter for several months some 50 per cent. of our electricity was generated by coal in a difficult global gas market.
We should not prevent the market from providing such flexibility as we become more dependent on gas. Although the Government are committed to meeting EU renewable energy targets and have paved the way for new nuclear, neither technology is currently well suited to providing large-scale, flexible generating capacity on the time scale that can respond quickly to changes in the supply-demand balance. Fossil fuel power stations are presently the only means that we have of ensuring the flexible and responsive back-up capacity that we need.
Therefore, instead of ruling out one type of energy supply, the approach favoured by the Government is to maintain a diverse energy mix and to support the EU ETS that sets absolute caps on carbon dioxide emissions, and thus sends a clear carbon price signal to the market. That incentivises the industry to bring forward cost-effective investments to drive carbon dioxide emissions reduction.

Charles Hendry: I have listened to the Minister with great care. He will be well aware that the price of carbon as set out under the EU ETS has fluctuated enormously. It has been up to â‚¬30 a tonne; it has been down to a few cents a tonne. Will he clarify the Government’s thinking on a floor price of carbon in the event that they decided that the EU ETS was not doing enough to switch people away from carbon because the price was too low? Will they consider a floor price?

Malcolm Wicks: The short answer is yes, as we have said in our documentation. We are reluctant to have to get to that place. All our efforts are in developing and making stronger the ETS, so that CCS can be brought in, as can aviation and so on. We can have some confidence that, as the phases progress—phase 3, for example—we will see a stronger price for carbon. That is kept in reserve as a possibility.
On my understanding, the new clause tabled by the hon. Member for Cheltenham asks for regulations on emissions standards and for carbon capture readiness to be made within 12 months of the Bill’s enactment. The fact is that the technology will not be ready by then. It will not have been tested in the UK or anywhere else. Again, that raises the issue of what timing the Liberal Democrat Members have in mind. This is not a debating point, it is a serious matter—I am still slightly hazy about whether they envisage a number of years when no fossil fuel or coal power stations would ever be allowed because the technology would not be ready. I am genuinely unclear about that. 
The issue of carbon capture and storage readiness is an important point referred to in new clause 18(3)(a). I would like hon. Members to note that we are currently considering whether we should require future fossil fuel power stations to be built “capture ready”, and if so, what the options would be for doing that. We will be launching a consultation on carbon capture readiness later this spring. The consultation will take into account the recent draft EU directive on CCS that promotes mandatory carbon capture ready conditions. It will consider the capture readiness requirements that may need to be contained in future applications for consents and how practically we might deal with the UK’s consenting process. It would therefore be premature to refer to carbon capture readiness in the Bill prior to the outcome of the consultation.

Paddy Tipping: I accept that that is a sensible approach, but there is currently one planning application—Kingsnorth in Kent—and the Minister will have to be careful how he talks about it. Presumably that application precedes the consultation and will not be affected by the statement that he has just made.

Malcolm Wicks: My hon. Friend might have been out of the room; indeed, I know that he was attending another Committee when I said at the beginning that I would not comment on any one application for reasons that he will understand. However, I have heard his comment.

Charles Hendry: Can the Minister define what he means by carbon capture ready? My understanding is that being carbon capture ready could mean having better scrubbing facilities for sorting out the SOx and NOx, because if they are not removed from the system one cannot apply the carbon capture technology at a later date. Also, it is about having additional space for building a carbon capture facility adjacent to the power station. Is that also his understanding or does he have something more fundamental in mind?

Malcolm Wicks: I invariably have more fundamental things in mind. The answer is yes: we want to consult because this, like many other questions, is not as simple as it sounds. We want to consider the capture readiness requirements that may be contained in future applications. In other words, we want to consider exactly what we mean by capture readiness. We want to have a consultation so that we can answer the hon. Gentleman’s question properly and technically. The issue deserves some technical work, hence our consultation.
In summary, I hope that I have reassured the hon. Members for Northavon and for Cheltenham that the provisions contained in the new clause are not necessary. The EU emissions trading scheme offers the most cost-effective means of ensuring that greenhouse gas emissions are reduced. However, I have always been happy to concede that, in the foreseeable future the ETS is unlikely to be the whole answer as it will depend on the price of carbon. Therefore, the consultation is important, as is the development of the CCS demonstration project as soon as we can.

Martin Horwood: I warmly welcome the Minister’s announcement of a consultation on readiness of carbon capture and storage. That is a very positive development that Liberal Democrats welcome.
It is a moot point whether locking in carbon capture and storage to the licensing regime in respect of new power stations is premature, or whether it is premature of the Bill to go ahead before that consultation has taken place. We can leave that to one side.
The Minister is also right to identify the major problem facing energy supply in the UK, which is that tens of gigawatts of power are to go off stream by the middle of the next decade. That is why carbon capture and storage is critical and why it is essential that a regime that locks in carbon capture and storage—not just in terms of storing the carbon but of mandating its capture—is so important. With the best will in the world, energy efficiency, renewables and nuclear—whichever we prefer—are not going to be ready in time to meet our emissions targets by the middle of the next decade when this large-scale generating capacity is lost.

Malcolm Wicks: I seek clarity from the hon. Gentleman. I could understand an argument that says that as soon as the technology is ready it should be a requirement. I am not saying that that would be the Government’s position, but it seems a logical argument. Is he saying that, or is he saying that until the technology is there a Liberal Democrat Government would never approve a coal-powered or fossil fuel powered station? What is the position on timing?

Martin Horwood: I am grateful for the Minister’s question and the opportunity to clarify. We are seeking to lock in a process whereby it will be clear to investors that absolute mandatory conditions, of the kind that he just seemed to open the door to, will be part of the regime and will be in the Bill to give the Secretary of State powers to mandate reductions in specific carbon dioxide emissions from power stations, including fossil fuel powered ones. It will be for the Secretary of State to judge when the technology has reached the point at which those powers can be exercised and the restrictions introduced. The Minister suggested that the exact limit on emissions set by the clause would stop the development of all new fossil fuel powered stations, but in practice that could be a matter for debate. If the level is wrong, we can have the same essential regime with a different level, if that needs to be negotiated.
Similarly, the Minister questioned whether the technology was ready to put this kind of regime in place. The point is not to prejudge the technological developments. We are trying to avoid that. This is technology-neutral. We are trying to send a clear signal to investors and the industry—as requested by Stern and in so many other arenas—that this will be the regime, the landscape, the policy and the clear strategic direction. At the moment, there is nothing about that area in the Bill. There is nothing in the Bill that reflects the comments that the Minister has just made about being open to the idea of setting limits on individual power stations. We are trying to introduce that.
The Minister’s broad position at present, as I understand it, is that measures outside the Bill, in particular the emissions trading scheme, are a sufficient incentive to industry to bring forward the new technology. That is a respectable and logical position. It is one that I hope, under some pressure, he might be persuaded to modify.
I find the Conservatives’ position less logical. They seem to support in principle the idea that we need to lock in some process to mandate carbon capture and storage, but to criticise the only practical and positive suggestion on the table, which is the new clause. There is no Conservative alternative. If Conservative Members are not going to support the proposal in front of us, I have to concede that it is unlikely to go forward.

Brian Iddon: My difficulty is that if we disincentivise the industry operating in this country, we may get a greater volume of imported energy, whereas the EU ETS scheme at least applies to neighbouring countries as well as to Great Britain.

Martin Horwood: I am grateful for the hon. Gentleman’s intervention, which was well informed as ever. He raises a legitimate concern, but we could debate the level at which the restrictions are set and whether the Californian model on which the new clause is based works well in practice. Such debates could all be had. At the moment, the new clause is the only practical suggestion for locking in capture, as opposed to storage, that is being suggested in the Committee.
As I said, I find the position of Conservative Members unsatisfactory because they are not proposing any alternatives despite appearing to support the broad approach in principle. I hope that consensus will emerge at a later stage in the Bill, but for the moment I concede that the new clause is not going to receive support. Therefore, I beg to ask leave to withdraw the motion standing in my name.

David Amess: Sometimes procedure in Committee can be confusing. Perhaps I should have made it clear at the start that although we are debating that clause 18 stand part of the Bill and new clause 18, the moving of new clause 18 will not happen until the end. That is when new clauses are moved and when there can be a Division on them. None the less, I have taken note of what the hon. Member for Cheltenham has said.

Charles Hendry: Thank you, Mr. Amess, for that clarity. I think that we are all much wiser—well probably no wiser but certainly better informed.
The debate has gone to the heart of the energy challenge that we face. We know that, in 20 years, there are going to be many new sources of energy. Marine and tidal technology will have proved what they can achieve, and we will know what other forms of renewable energy, such as photovoltaics, can deliver. We have a massive energy shortfall coming down the line and we have to make decisions on how we are going to address that at an earlier stage. The challenge is that we do not know what technology can deliver economically.
We probably all believe that CCS is technically possible, but the challenge will be to ask industry to invest in new coal technology and coal-fired power stations when it does not know what the cost will be or who will pay for it. Industry will be aware that it will cost hundreds of millions of pounds to add CCS to each power station. If the Government were going to come forward with the money, by using some of the credit from the EU ETS for example, that would make a completely different investment environment from the one there is now. Although I am sympathetic to and understand what Governor Schwarzenegger has achieved in California, my concern about the new clause is that it would introduce too many uncertainties into people’s investment decisions in this area.
I want to raise with the Minister a number of general points about clause 18; there are areas where greater clarification will be helpful. Is he seeking to have international agreements and standards on these matters, rather than the UK going it alone? It would be a matter of concern to us, if we felt that the UK had different standards to other countries, particularly if those countries were adjacent to us. I hope that he will take a generally global view on that. The countries that may be able to do most in this area are those such as Norway and the United States, so we should not just be looking at an EU solution but to genuinely international standards.
Who does the Minister think will be able to apply for a licence under clause 18(2)(a)? What restrictions does he have in mind? Are there categories of people who will be likely to be barred from making applications? He has indicated in the past that it was unnecessary to bar people from making future applications, because if they did not adhere to the rules and regulations, this is the area where they could be ruled out. Are there other categories, particularly international ownership of organisations, where that may be the case? Would that give him grounds for anxiety? What will the fund, as set out in clause 18(2)(e), be used for? Will it deal with problems during the facility’s operation? How will financial security be provided? Will it just be from funds contributed, or will there also be a duty on parents and associated companies? Does that also take account of any decommissioning costs?
The store itself will clearly not be decommissioned—the intention is that the CO2 will be there for all time—but a small amount of apparatus will be necessary for injecting the CO2 into that facility. Who will be responsible for the decommissioning of that and will it be covered from this fund? Further, who will look after the fund—will it be ring-fenced? Will that be managed by the Government, or will it be invested elsewhere? Could it be used, for example, to offset levels of Government debt? Greater clarity as to how the fund will be looked after would be helpful.
Finally, I refer the Minister back to the comments made by my hon. Friend the Member for Northampton, South, who sadly cannot be here this morning. He talked about the need for a financial security test. At the time, the Minister said that that related more specifically to CO2 than to gas storage elements, so perhaps this would be an appropriate moment for him to comment on that. My hon. Friend said:
“I understand the need for a financial security test with regard to the financial standing of certain licensees when that test suggests that their ability to meet their obligation may be at risk. However, we need to temper that with an understanding that this should not be an automatic presumption to ensure that companies do not make unnecessary financial provision over a sizeable period of time.”——[Official Report, Energy Public Bill Committee, 21 February 2008; c. 160.]
I hope the Minister will respond to those details, but in general, it seems to be a benign clause that we will certainly support.

Malcolm Wicks: I thank the hon. Gentleman for that intervention. I think I indicated last week—certainly there will be an opportunity later this morning, or later today—to say more about the international framework that we are developing. However, he is obviously right that there is no point in us just developing ideas about CCS or any other proposals on carbon reductions here in the UK. We have got to play our part. We are responsible for 2 per cent. of the world’s CO2 reductions but given that that means—if my arithmetic is right—that 98 per cent. is the responsibility of other countries, we need to work internationally. Without going over territory that I can cover later, we are, for example, working very hard with the Norwegians on carbon capture and storage, including the reform of international conventions that have prevented the dumping of waste at sea. They clearly need modernising and we are making great progress on that. We are, of course, working within the framework of the European Union but I will say more about that in due course.
The classes of persons and who can apply for licences under the clause will be prescribed by regulations. Those persons will have to be financially sound and sufficiently expert to undertake the activity of carbon storage. In essence, all the normal safeguards will apply. We obviously have to be scrupulous about the criteria; we have to make sure that those companies coming forward are fit for purpose in all sorts of ways—in terms of finances and technologies.
The hon. Member for Wealden asked how the funds will be provided—will parent companies pay? We will be consulting on the nature of financial security. Our aim is to provide protection for taxpayers at least cost to the operator; we do not want to regulate for the sake of it. The operator will be responsible for decommissioning facilities and we will bear the cost—as is the case for other offshore facilities. Will the hon. Gentleman be happy for me to write to him about the precise nature of the fund? I understand the points that he is making and I can assure him that this will of course not be used as a pot for our friends at the Treasury. However, we need to have appropriate safeguards in terms of setting up the fund to make sure that it is there for its purpose.

Anne Main: I should like some elaboration on what is required for people decommissioning offshore facilities. Is there enough clarity over what will be left when this is capped off—I cannot think of a better way of putting it? What structures will remain, will there be ongoing observation of the state of the site and what can people expect? These structures, as we know with the North sea, often end up in some fjord as a crumbling wreck. Exactly what do we imagine remaining in perpetuity for shipping, wildlife and the marine environment as a whole?

Malcolm Wicks: We have much experience to draw on and will do in the coming few years—from the decommissioning of our oil and gas rigs in the North sea and the wider UK continental shelf where we have very clear procedures on what we mean by decommissioning. We discuss that regularly with the industry. We were saying last week that the company will have the prime responsibility, not the only responsibility, for monitoring the operation while it is live and before it is finally sealed off and capped, but we also said that our own departmental inspectors, whose experience is in oil and gas, will have a major responsibility, but with all the extra technical assistance that will be required. When the carbon dioxide storage is concluded—when it is finally sealed or capped—the state will, in one way or another, have the ultimate responsibility for long-term monitoring.
The hon. Lady will appreciate that the details will need to be finalised at the appropriate time. At the moment the UK has no direct experience of this kind of storage of CO2, but we are able to draw on the experience of the Norwegians in the Sleipner gas field, where CO2 storage has now occurred for 10 or so years. I have done my best to answer all the questions, but I will write to the hon. Gentleman about the fund.

Question put and agreed to.

Clause 18 ordered to stand part of the Bill.

Clause 19

Terms and conditions

Charles Hendry: I beg to move amendment No. 12, in clause 19, page 10, line 27, at end insert—
‘(i) provision about obligations of a licence holder to advise the Secretary of State of any accidents, near accidents or leakages relating to the facility.’.
This clause sets out the terms and conditions that can be attached to a licence, and they are mostly sensible, nuts-and-bolts things. However there is nothing here about the rules relating to an accident. The Bill sets out an inspection regime, but an inspector will presumably make visits either at a given time or unannounced, but that will not necessarily coincide with something untoward happening at the facility. This amendment puts the onus, indeed a legal requirement, on the operator to advise if there have been accidents or near-accidents. We recognise that there could be legal difficulty in defining a near-accident, but it is right to be concerned about things that go wrong even if they did not actually result in a formal accident. They might indicate poor working practices that should be investigated.
We all recognise that we are entering uncharted waters with this technology and will be on a learning curve for many years to come. We do not know from whence the risks to the public or environmental safety might come, so we do need to take adequate precautions. Safety, of course, comes with experience and from learning from mistakes—where things have gone wrong, what steps have been put in place to make sure they do not happen again? Lessons learned in this way are so fundamental that they are, of course, the way we make sure that we make adequate precaution for the future.
It would be naive to think we could build in every conceivable safety element from the outset, so we need a precautionary approach in which the onus is on the operator to advise of accidents and near-accidents. Operators will be very concerned about safety, but in the early years of such technology, they will also be concerned about driving costs down, and cost reductions must not be allowed to win over safety. Similarly with leaks, the technology for identifying leaks is in its infancy. Mechanisms to identify leaks can be put in place, but it should be the responsibility of the operator to report any leaks that take place so that they can be fully investigated.

Steve Webb: The hon. Gentleman’s amendment ties in with my comment earlier this morning about the omission from clause 19 of matters relating to leaks. I know that Government policy on leaks is normally to have a review that never reports, but I think that we need something better in this case. Therefore, the idea of a reporting requirement, as far as it goes, is not one I have a problem with.
This amendment, however, highlights a more general set of omissions from the terms and conditions set out in clause 19—and indeed, this part of the Bill—which relate to the whole issue of monitoring the security of the storage. We do not just want a report—that there is a big CO2 leak and the licensee reports it to the Secretary of State. That is fine, but does not quite seem to go far enough.
What other models are the Government looking to? Are they considering existing models that regulate, for example, mining, oil and gas, pollution control and waste disposal? A number of parallel activities have their own monitoring reporting regimes and which of them, if any, is being looked at—or is there a completely new approach being taken to the regulation of CCS?
I have no problem with the amendment, although I do not feel that it goes far enough in simply requiring reporting of accidents—and if they are as catastrophic as has been suggested, we will know anyway—but we need to go a lot further than it suggests.
I am puzzled, really, by the absence of much more detail in the Bill about the liabilities of operators and why the list of things a licence may include under clause 19(3)(a) to (h) has nothing about not only reporting requirements, but about penalties and monitoring in the event of leakages. I hope that the Minister can give us a fairly full response to the issues that have been raised by this amendment and clause 19.

Malcolm Wicks: I will do my best. Certainly the issue around accidents of different kinds is crucial, so I would like to thank the hon. Members for Wealden and for Billericay for tabling the amendment. I recognise that they raise an important point in relation to carbon dioxide storage. Given the nature of likely CO2 storage in our seas, I will not say more about the use of the term “uncharted waters”—I do not think that the hon. Member for Wealden meant that technically but I know what he means. I hope, however, that some of these waters are charted.
Existing legislation is not suited to licensing the storage of carbon dioxide under the sea bed, and chapter 3 of the Bill is intended to provide a comprehensive and adaptable legal basis for regulating such storage in the offshore area. I would like to explain why we have drafted the provisions in the way we have, and set out why we think the amendment to include a provision about notification of accidents, near-accidents or leakages relating to a CO2 storage site is unnecessary.
The clause allows licences for CO2 storage and related activities to be granted on such terms and conditions as the Secretary of State, or an authority to which the licensing function is transferred, sees fit. The power will allow the licensing authority to include case-specific requirements in relation to each carbon dioxide store. The clause provides a non-exhaustive list of examples of the sorts of conditions licences may contain, including financial security provisions; the right for the Secretary of State to modify the licence; and provisions about closure of the storage site and termination of the licence. In addition, we expect that all licences will include provisions relating to monitoring and remediation, reporting, record-keeping, notification obligations, and the requirement to have a valid lease from the Crown Estate for the relevant site.
The clause therefore gives the Secretary of State, or another licensing authority, unfettered discretion to grant licences on such terms and conditions as it considers appropriate, subject to any regulations about the terms and conditions of licences that may be issued under clause 20.

Steve Webb: Will the Minister give way?

Malcolm Wicks: I think it would help the hon. Gentleman—and I like to be helpful, from time to time, anyway—if I made progress.
It would not be necessary to have express provisions in the Bill because subsection (3) is a non-exhaustive list. Our approach in subsection (3) is to set out examples of some of the less obvious provisions that may be contained in licences. Notification obligations, on the other hand, will be included in every licence as a matter of course, due to the importance of keeping the regulatory authority informed of any leaks or accidents or other significant developments in relation to the storage site.
Indeed, clause 22(1) specifies that that it will be an offence to fail to notify the regulatory authority as required by licence, which necessarily implies that notification requirements may be included in a licence. The Committee may also wish to note that my Department will be consulting on the licence arrangements shortly.
Consequently, I hope that I have provided some reassurance to the hon. Member for Northavon that provisions concerning the notification of accidents or leakages are sufficiently covered in this part of the Bill, without the need to add to the non-exhaustive list under the clause. I must confess that I can see why he raised the matter, but I am advised that it is a list of unusual provisions to be contained in the licences and that, by contrast with mediation and notification, will be included as standard. I apologise if that has led to confusion on his part but, as my speech progressed, my own confusion started to evaporate.

Steve Webb: The Minister has brought forward an interesting doctrine whereby the Bill contains things that people might not have thought of, and omits the obvious, which is novel for Government legislation. Will he clarify as a set the status of the eight things under the clause? Is he really asking us to believe that they are in the Bill simply because we might not have thought of them, such as that the Secretary of State could review the licence, whereas reporting is so blindingly obvious that it does not need to be mentioned? Is that the Department’s strategy for legislating these days?

Malcolm Wicks: That statement does not quite summarise our approach. I have conceded to the hon. Gentleman that I can understand why he is confused. Our approach was such that some things were so blindingly obvious—for example, concern about accidents and leakages—that reference need not be made to them, but I hope that he is now reassured. My experience with the Department working with the oil and gas industry, which is an obvious comparator, through our partnership with the industry known as PILOT, which I attend regularly, has impressed on me the fact that the industry takes accidents most seriously. We have only to go on an oil rig to experience a 20-minute safety speech first. That takes place perfectly properly, and we are not complacent about it. I am convinced that my Department and many of the big players that are likely to be involved in carbon dioxide storage have accidents as well as leakages uppermost in their minds. I hope that I have reassured the hon. Gentleman to some extent.

Martin Horwood: The Minister has explained in general terms why some things as obvious as the environmental consequences are not set out in the Bill, although that might have been a good measure given that, when discussing earlier clauses, he suggested that environmental consequences would be paramount to the granting of licences under other parts of the Bill’s regime. He might therefore wish to comment on how important they are to the licensing regime that we are discussing.
My specific question is about whether the granting of licences will involve the calculation of the future cost of climate change. That is a relevant consideration at the moment, because it was used in the consultation on the third runway at Heathrow, when a strange new number invented by the Department for Environment, Food and Rural Affairs called the shadow price of carbon was used to calculate the future cost of climate change from carbon emissions on that project. That shadow price of carbon was three times lower than the one recommended in the Stern report for calculating the future cost of climate change. The difference was based on the assumption as to whether the various measures to tackle climate change would be successful. Stern was pessimistic, but realistic, about the prospects of that happening. Will the future cost of climate change be factored into the granting of licences for the facilities? If so, will we be committed to using the rather dubious number that was invented by DEFRA perhaps to fiddle the outcome of the Heathrow consultation, which that would have changed, or will there be the potential for DBERR to plan a more realistic path on its own and use calculations based more closely on the Stern report?

Malcolm Wicks: If I did not know that the hon. Gentleman was one of the most disciplined parliamentarians in the House, I might have thought that he was trying to use my Bill as a little peg to make a point about Heathrow and DEFRA. I am sure that that is not the case. The importance of climate change is one of the reasons why issues about carbon dioxide storage are in the Bill. Tackling climate change is one of the major purposes of the Bill. If we are to stand any chance of tackling climate change—and we stand a good chance—we need to bring forward such technology. At this point, I think that I will leave the hon. Gentleman on the runway.

Charles Hendry: I am afraid that the Minister’s response is not good enough, although we have great sympathy for him. He was reading through his text and suddenly realised that he did not understand what he was saying. We have all been there before. I find that that can happen to me even when I have written my own speech notes. Alongside Murphy’s law and Parkinson’s law, we now have Wicks’s law which says, “Do not put in legislation anything that is obvious.”
If the Minister looks at the elements that could be included in the licence, they could scarcely be considered to be unusual or less obvious, which were the words that he used. The hon. Member for Cheltenham talked about the provision
“enabling the Secretary of State to review the licence”.
We also have the provision
“enabling the Secretary of State to modify the licence”.
There is also the provision
“about closure of a carbon storage facility.”
Those are very obvious elements to include. Therefore, the Minister’s main line of defence does not stand up.
In relation to what we do with the amendment next, will the Minister assure us that included in the licence—even if it is not in the Bill—will be an obligation on the operators to advise of an accident or a leakage? If they do not have that obligation, how will we know if one has taken place? If they do not have the duty to tell the Minister or the Secretary of State, how will anybody know that something has happened and how can we be in a position to enforce good practice?

Malcolm Wicks: I am happy to assure the hon. Gentleman that the issue of accident and leaks will be a very significant part of the Bill. I was slightly teasing myself about considering the question about the less obvious things in the Bill.
The hon. Gentleman made a quite good debating point. The substance of the matter is that this issue of accidents, relating both to personnel and to potential leaks, is crucial and will be a major component of the licence. Is he reassured? I do not want him to be disappointed in me in relation to anything that I say in this Committee.

Charles Hendry: Indeed, I would hate ever to be disappointed by the Minister. Given the Minister’s assurances that the licences will include that point, I will not push the amendment to a vote. I beg to seek leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Charles Hendry: I raise a small point in relation to clause 19(3)(d), which talks about the provision
“enabling the Secretary of State to modify the licence in specified circumstances (with or without the consent of the licence holder.”
I understand why the Government do not necessarily need the consent of the licence holder because the licence holder may object to what the Government want to do but the Government may feel that it is right to do that. Will the Minister assure us that such a decision will be made following consultation with the licence holder so that it will have a chance to ensure that its views and concerns are taken into account?

Malcolm Wicks: Yes.

Hugo Swire: I put it to the Minister that brevity is everything.
Further to the point made by my hon. Friend the shadow spokesman on clause 19(3)(d), will the Minister say what the legal situation could be as regards somebody who has been granted a licence and suddenly the Secretary of State takes unto himself the powers to modify a licence that has already been granted in good faith? Is that feasible under law?

Malcolm Wicks: Clearly, as this debate shows, the licence is a key means of ensuring that the environmental impacts of the carbon dioxide stores are minimised. That, combined with the fact that this is an emerging industry in which technical and regulatory experience is still evolving, means that a degree of flexibility in prescribing and modifying licence terms must be retained. For example, much of the basis of the initial licensing of a store will be predictive modelling of the behaviour of carbon dioxide in natural geological formations. If those models prove to be inaccurate, the regulatory authority may need to modify the licence. I mentioned that we know a little about the behaviour of CO2 through the Sleipner project in Norway, but it is early days scientifically.
The draft EU directive on carbon dioxide storage also requires the regulatory authority to have the power to review and, where necessary, modify the licence. Existing offshore licensing arrangements contain similar provisions, for example, licences issued under part 2 of the Food and Environmental Protection Act 1985 include the right of the regulatory authority to attach additional conditions, where there is a risk of adverse environmental impacts.
I understand the hon. Gentleman’s concern, because someone signs a licence and they need some certainty, but I hope that he will also understand that in this new territory, when we are on the frontiers of a new science, a new engineering and new technology, some flexibility is required. I assure him, as I assured his colleague the hon. Member for Wealden, that consultation is important in this area and will be standard.

Hugo Swire: I do not want to labour the point, but if the Minister retains the right to modify the licence, there could be cost implications for the organisations or companies that have taken out that licence. In some cases the modifications, which are not specified in any great detail, could have a negative financial effect on the licensee.

Malcolm Wicks: I understand that there could be financial implications. Clearly, we want these new businesses to develop in the future, but I do not think that at this stage I can give the hon. Gentleman any assurances or reassurances on the financial implications of a modification of a licence.

Anne Main: Given that queries about certainty for licence holders are now entering the debate, does the Minister think it advisable to have a licence for a permitted period, which he might specify, rather than what seems to be a somewhat open-ended commitment to a licence, but one that can therefore be modified without the licensee’s permission?

Malcolm Wicks: I would need to reflect on that. This is a long-term business, is it not? I think I said earlier that we might be talking about something of the order of 40 years for CO2 storage. I keep repeating myself, but it is such early days, who knows what the length of these projects will be? They will be long projects. We have plenty of time to reflect, but I would need to reflect on what the hon. Lady is saying. Is she saying that it would be sensible to only grant a licence for 10 years, with clear details, as opposed to granting one for 40 years that might need flexibility later?

Anne Main: I just wanted to tease out the Minister’s thoughts. There are so many vagaries, not because anybody intends to make life vague, but because there are imponderables about the future. It may be that there will be a rolling programme of renewing, so that there is a guaranteed certainty unless the licences have been operated in an unacceptable fashion. Perhaps the Minister should look at that rather than putting into the Bill something which, depending on the political climate of the time, allows him to alter the licence at will or on a whim. With that vague possibility of future costs, the licensee would be left uncertain or unwilling to invest.

Malcolm Wicks: As I say, there will be time to reflect on such matters. No doubt when we reach that point—and I hope that we will reach it with our demonstration project, although that will be for one rather special project—we will consult with the relevant company or consortium. In the longer term, there will be opportunities for consulting with the new and emerging industry. We certainly have flexibilities in the North sea with regard to oil and gas, which we want to ensure are being properly exploited. Where appropriate, we can take licences away and reallocate them to newer, often smaller, companies. I am not certain whether that is a useful comparison, but I understand the question. We are in very early days and I understand that companies need as much certainty, including financial certainty, as they can get. There will be great opportunities to explore these issues and consult with the companies concerned.

Anne Main: I thank the Minister for his answer. He spoke about taking licences away, and touched on oil and gas. If there are parallels, does he feel that there is enough detail about licensing to make a judgment as to whether to remove a licence?

Malcolm Wicks: No, of course I do not. It is a bit like talking about urban development on Mars when we have not even lit the fuse, or whatever we do. I am not saying that the hon. Lady is being unreasonable, but it is reasonable to say that these are early days and there will be time to consider these issues. We should look at this as a new industry that will emerge globally, with opportunities for companies to prove themselves and show that they are technically and financially on top of the job when seeking other contracts around the world. I think that many companies will understand that we need flexibilities. They will want to prove that they can be adaptable as we learn more about science, technology and engineering, so that they can win contracts in the future. Trying to look into the crystal ball, I doubt that companies will object to flexibility for licences, because they will want to prove themselves commercially adaptable to the emergence of technology as the decades roll past.
 Mr. Swire rose—

Malcolm Wicks: I think that I have provoked the hon. Gentleman.

Hugo Swire: Far from that, I may be coming to the Minister’s rescue on this point as he seems pretty unclear at the moment. The Minister referred to existing technologies and licences in the North sea with respect to the oil and gas projects. He said that the Secretary of State has the right to remove licences and reallocate them. Does the Secretary of State have the right to modify North sea oil licences, and can the Minister give any example of where such a licence has been issued and can be modified? That is the crux of the matter.

Malcolm Wicks: I will have to come back to the hon. Gentleman on the issue of modification, and I will do so. We do have some experience. Earlier I referred to what some call the, “Lose it or use it” approach to the North sea, which the industry as a whole rather accepts. Some big companies have decided that their priorities lie elsewhere in the world in terms of oil or gas exploration, and we now make those potential fields available to what are often smaller and enterprising companies. That is possibly a little off course, but I repeat the point: there will be time to look at all those matters.
We must, of course, be careful to ensure that a company that takes on the responsibility of CO2 storage recognises that it is in the business for the long term. It is not a commercial activity for a year or two, and indeed, the ultimate responsibility for decommissioning lies with the company. If there were any transfer of a licence, we would have to make sure that all the financial certainty was there in agreeing to that. This is looking ahead.

Charles Hendry: The Minister appears to be slightly disagreeing with his own argument. Just now he was arguing for flexibility. Now he is arguing for some degree of certainty. Perhaps I can help the Minister.
The people applying for these licences are going to be those companies looking to operate a fossil fuel facility. If they are going to put in the many millions in costs for the carbon capture and storage facility to be adjacent to or an integral part of their power plant, and then potentially hundreds of miles of pipeline to a storage facility, they will want to know that the licence will apply for as long as they are running that power plant. If there were a risk that after 25 years they could lose the right to deposit the carbon they had captured in a facility that may stop them going for it in the first place. They would end up with a facility that they could not operate because by then the rules might have changed or the price of carbon would be so high. Surely they are looking above all for certainty rather than flexibility.

Malcolm Wicks: I think that we have said that this is a long-term project. I mentioned 40 years. Who knows whether that is an underestimate? Time will tell. This is the long term. The company investing will want to know that.
I have explained, however, that it is important that the Secretary of State has certain powers for flexibility, not least as we learn more about this technology. I could also envisage that a company might feel that after a number of years it did not want to stay in this business, and that its commercial priority had changed. Then, subject to lots of appropriate safeguards in terms of another company taking over the contract—all the financial safeguards that we could think of in terms of the ultimate costs of decommissioning and the financial arrangements that would be necessary between one company and another—I would not rule out the possibility of another company taking on not only the task and the commercial opportunity but also, subject to arrangements with the first company, the appropriate safeguards.

Question put and agreed to.

Clause 19 ordered to stand part of the Bill.

Clause 20

Content of licences: regulations

Question proposed, That the clause stand part of the Bill.

David Amess: With this it will be convenient to discuss new clause 7—Carbon capture competitions —
‘In any competitive process relating to carbon capture initiated by the Secretary of State, equal status shall be given to all carbon capture technologies.’

Malcolm Wicks: I was so busy listening to you, Mr. Amess, I did not understand that this meant that I should now speak. I am enjoying this dialogue so I am looking forward to other people having the opportunity to speak.
Clause 20 allows the Secretary of State to make regulations prescribing the terms and conditions that must be included in licences. It is necessary to have this power to make regulations prescribing the contents of licences for several reasons. For example, it will allow the Secretary of State to specify the minimum provisions that must be included in every licence, and whether they are to be issued by the Secretary of State himself or herself or another authority to which the licensing function has been transferred under clause 33, as we discussed previously, thus ensuring that the key standards and conditions are contained in all licences. Moreover, this power will allow specific provisions prescribed by EU legislation or international guidance to be incorporated in all licences.

Steve Webb: I would like to address my remarks to new clause 7, which is a very simple one. It says that where there is a competitive process related to carbon capture, the Secretary of State’s approach should be technology-neutral. That is what we are driving at. I anticipate that the Minister will accept our amendment because of something he said earlier this morning. When he was talking about alternative strategies for carbon reduction, he said that choice of technology is a matter for companies to determine. I wrote it down as quickly as I could and the record will bear me out, but perhaps the Minister will correct me if am misquoting him. He said that in the context of the energy mix and the best strategy for reducing CO2 and I agree with him.
That is consistent with our new clause, which says that there are three main approaches to carbon capture and storage. The hon. Member for Bolton, South-East ran through this so I will not go over it again at any length, but we have talked quite a lot about post-combustion technology and pre-combustion technology, and rather less interestingly—I would be interested to hear the Minister’s view on this—about oxyfuel combustion, in which the fuel is burnt in oxygen rather than air.
It seems to us that there are three possible technologies that could have been a source of competition and a range of approaches that the Government could have taken. One is that they could have said, “Our goal is reducing CO2 emissions through some method of carbon capture. We will therefore invite submissions from anybody who can do this by any means. We will evaluate them against each other—both within technologies and between technologies—and the one that seems to give us the most bang for our buck is the one we will go for”.
Therefore, there is a one-competition approach. The Minister, in his gently mocking manner, suggested that we were calling for four or five competitions. There is a one-competition answer to this, which is simply that, if public money is to be spent and the Government feel that they do not have the money for more than one technology, at the very least different technologies will be allowed to compete against one another—and may the best carbon capturer win.
That would have been one way. Another way, as we suggested at the previous sitting of the Committee, would have been to have had separate competitions for the different technologies. If the Minister’s argument, as I understand it, is that, like oranges and apples, they cannot be compared, then perhaps there could have been separate competitions. We have suggested that what Ofgem regards as the windfall profits of the energy companies might have been a source of revenue to fund additional competitions. We are not prescriptive about it but, given the importance of the matter, it might have been a better way of doing things. 
The Minister has said that this is potentially one of 12 EU-wide demonstration projects. To be fair to him, the Government deserve some credit for trying to take the process forward. I hope that he will update the Committee on where he thinks the other 11 are up to. The Minister shrugs his shoulders worryingly.

Malcolm Wicks: It is hard enough being a Minister of State in the UK without being responsible for all the other nations.

Steve Webb: There is a serious reason that I ask the question. Are the Government confident, first, that those other schemes are going to come forward at all, and secondly, that they will cover the diverse range of technologies? With the Government having decided to be technology-specific—which we are not happy about—the purpose of our new clause is to make sure that the other technologies are tested in the other demonstration projects.
I hope that the Minister is doing more than just shrugging his shoulders. I hope that when he talks in his fluent Polish, or whatever, to his European counterparts, he is saying to them, “How about getting on with your projects and how about these other technologies being looked at?” The Government have locked the UK in for one demonstration project on one technology, but are they using their influence, such as it is, with our EU partners, to ensure that in the 12 we are at least trying to ameliorate the problem we have created for ourselves by ensuring that other demonstration projects test other technologies?

Stephen Ladyman: I am slightly worried that the hon. Gentleman’s new clause will have the perverse effect, which I do not think that he intends, whereby the Government will be required to give equal weighting to different technologies. Therefore, even if the UK becomes expert in one particular technology and other countries become experts in a different technology, we would not be allowed to favour those technologies that the UK has become expert in.

Steve Webb: I understand the hon. Gentleman’s point, but it is not true of the new clause, because it refers to competitive processes initiated by the Secretary of State—now and at the start of the process when expertise is in short supply. If, at a later stage, we get very good at a particular technology, nothing in the new clause would prevent the UK Government from favouring it, because the Government’s approach to such technologies would not necessarily involve a competitive process. The new clause relates to the competitive process now being initiated in this country.

Stephen Ladyman: Were the new clause to have the interpretation that the hon. Gentleman has suggested, it would need some sort of sunset clause whereby the Government would only have to be even-handed about such matters up to a certain point. After that point, the Government would not have to be even-handed. As it stands, they would be required to be even-handed for ever.

Steve Webb: Were the Minister to say that he accepts the principle, but it must end at some point, I could live with that. I am not too worried about the principle applying for ever. The new clause does not bind any non-competitive process—it refers only to competitions, and its title is “Carbon capture competitions”. In my judgment, it does not cover the much wider range of issues such as future Government incentives for carbon capture, but if the only problem with the new clause is that it needs a sunset clause, I am happy to accept that further amendment.
The worry is the impact that the Government’s decision to favour one technology has had on the technology that is out there. Time scales are terribly important, as the Minister would accept. My understanding is that the EU 12 projects have to be in place and with results by 2015—I believe that that is the date that has been given. But the DBERR website says that the competition that it has set up requires something to be in place by 2014. I looked at the website this morning and I think that that is right, but it would be helpful if the Minister could clarify why that is the case.
We have to refer to the expert evidence that we were given from the director of the Carbon Capture and Storage Association at the start of our process. We might say, “He would say this, wouldn’t he,” but he is pretty knowledgeable about the subject. He referred to four pre-combustion products and, at column 100, said that they were all
“on a go-slow now.”——[Official Report, Energy Public Bill Committee, 19 February 2008; c. 100.]
Does the Minister accept that the consequence of his decision to be technology-specific has been to undermine several other projects that are actually up and running, because that is clearly the view of the industry?
The witness, Dr. Chapman, said to us that pre-combustion technology is very important. I think that the hon. Member for Bolton, South-East reminded us that we talk about the hydrogen economy—we have all used that expression in speeches about the dim and distant future—but here and now we have a by-product of pre-combustion technology that is a source of hydrogen, which could help to fuel the hydrogen economy. If not through that route, how does the Minister envisage the hydrogen economy getting going? 
Dr. Chapman said
“This—
pre-combustion technology—
will be the most efficient way to make hydrogen in the future, and with carbon capture and storage, there will be clean energy using hydrogen as a vector. That is very important for pre-combustion technology; it is a very important place, and we in the UK need to be there.”——[Official Report, Energy Public Bill Committee, 19 February 2008; c. 100.]
But his view is that the selection of a technology has potentially undermined something very important.

Malcolm Wicks: When we discussed this previously, I spoke, as I will when I contribute to the debate later today, about the application of post-combustion technology to the situation in China. I have raised that issue with the Committee and the hon. Member for Northavon before. Has he factored into his analysis the pros and cons of pre and post-combustion when it comes to the real challenge of coal-fired power stations and the consequently huge emissions in China?

Steve Webb: The Minister makes a perfectly fair point—I have been perfectly happy to accept that on the record in the past—but he was happy to admit to the Committee that we are talking about the expenditure of hundreds of millions of pounds of taxpayers’ money. My question to him is, where is the cost-benefit analysis of the different sorts of carbon capture technology that has led the Government to pick one? They have made a big decision, which will have implications for years to come, on the technology used for carbon capture.
The Minister implies that the Government have—and I hope that they have—weighed up the pros and cons of the different technologies. Will he place in the Library a copy of the document in which they did that? Have they looked at all three? Have they looked at how long it might take? Have they tried to put some sort of value on the potential for retrofitting Chinese coal-fired power stations, as against the potential of a hydrogen economy if we have pre-combustion technology? Surely, if the Government have taken a decision to favour one over another, it has been based on a coherent, rational, structured cost-benefit analysis, which the Minister will place in the Library at our request. I certainly hope so.

Brian Iddon: The analysis that the Science and Technology Committee were aware of and which the Government responded to on 27 April 2006 is the so-called MARKAL modelling analysis. As far as I am aware, unless there is some more recent data or analysis, that is what the Government based the choice of post versus pre-carbon capture technology on. However, as the Government said in their answer to the Science and Technology Committee’s report:
“Subsequently some generators have indicated that the cost balance between refurbishment and new build is closer than implied by the MARKAL analysis, which did not take account of lost revenue during the refurbishment shutdown and space limitations at some sites.”
That means that on some generator sites there is not room to build a pre-capture plant or to fit retrospectively post-carbon capture technology. Space limitation is one issue, but the other is that to fit retrospective post-carbon capture technology, the plant has to be shut down for a considerable period. I ask the Minister, why was that not included in the MARKAL analysis? It would probably have altered the balance between pre and post-capture technology.

Steve Webb: I am grateful for that well-informed intervention. That is the kind of analysis that I hope that the Minister will place in the Library: the analysis that the Department has done for all three technologies, taking into account not just the range of costs and benefits, which might be of a more commercial nature, as the hon. Gentleman suggests, but wider matters. As an economist, I struggle to think how one can put a cash value on the benefit of facilitating the hydrogen economy, but that appears to be a potential benefit of one of the technologies. Have the Government done that? My sense is that they have not. They have had a think about it, they have looked at some of the papers, which the hon. Gentleman gave, and they have taken a punt on one technology. The Minister is shaking his head. It would be nice to think that there is a comprehensive, rigorous and thorough analysis of the costs and benefits of the three technologies and that he will publish that analysis so that we can look at it.

Malcolm Wicks: Let me press the hon. Gentleman on this point. This is an extremely complex field. I think that he was conceding that although it is an interesting and intellectually stimulating debating point to say, “Here is a technology that can produce a hydrogen economy. Here is another one. Let’s do a cost-benefit analysis, ” that could not, I suspect, be done in great detail. In any case, one would want to factor into the analysis that others are developing hydrogen technologies; there is a lot of interest in that in the United States. With respect, he is dodging my point about China. We know the rate at which the Chinese are building coal-fired power stations to fuel their economy. I am advised that it is post-combustion technology that could be retrofitted there. Given the huge carbon emissions from China in the future, is he really quarrelling with the advice that I have received that, as we had to choose one technology, post-combustion was the best?

Steve Webb: I am querying the Minister’s premise that we had to choose one technology—that we had to pre-select. That is the fundamental point. It may be that a competitive process with a proper evaluation of what the Minister calls the pros and cons would have resulted, if there was to be a single project, in a post-combustion project. That may have been the outcome, but pre-empting the outcome in the way that the Minister has seems to be the problem. He implies that the Government could not do a cost-benefit analysis, so I am trying to work out what they did do. Has he weighed up the costs from the go-slow on the four pre-combustion projects, which he has undermined by picking a different technology? Surely, just as I should take account of the potential benefits of retrofitting Chinese coal-fired power stations, the Minister should take account of the costs of undermining commercial projects to develop alternative technology. That has been the impact of his decision.
Our argument is that if we are to have one competition, the Government should not pre-empt its outcome by picking a technology. The Minister was right when he said to the Committee this morning that the technology was a matter for the companies not for the Government; the Government should set the framework, enable the competing technologies to compete and show which is the best across the board. My concern is that by picking a winner, as it were, the Government have undermined other valuable technologies that could have been well worth looking at.

Charles Hendry: This has been a very interesting and useful exchange so far. I agree with the hon. Gentleman’s analysis of the Government’s pilot project and the fact that the Government have made a mistake in the way that they have gone about it. However, I do not believe that his new clause is the right solution, because to go down the route of stopping the Minister deciding on the right type of technology in future competitions is too prescriptive.
The hon. Member for South Thanet put his finger on the key issue. The perverse consequence of this new clause would actually make it more difficult for us to encourage areas where the technologies might best be explored further. If we make good progress with the post-combustion project that the Government are supporting and then in a few years the Government decide to launch another project to see whether they could bring pre-combustion technology up to the same status, this new clause would make that illegal. It would mean that they could not say “We now want to do a pre-combustion project”, because this new clause says that equal status should now be given to all carbon-capture technologies. It would end up being counter-productive and we would need a new Act of Parliament to allow the Government to put in place a competition for one type of technology.
The Minister asked last week if the Liberal Democrats wanted two, three, four, five different projects to run at the same time. With respect, he asked the wrong question—that was always Ted Heath’s response on “Newsnight” when he was asked a question he did not like. He would say “With respect, Mr. Paxman, you are asking me the wrong question” and he would answer the question he would have liked to have been asked. The Minister has asked the wrong question because rather than going alone on this issue, this should have been a genuinely international exercise. The UK should be part of an international consortium trying to develop post-combustion carbon capture and storage and also be part of an international consortium trying to develop pre-combustion carbon capture and storage. We would then find that there would be reduced costs for us as part of that process and we could genuinely compare the benefits that could be derived from different technologies.
It goes back to what the chairman of Shell was saying about going for a “blueprint approach” to this rather than a “scramble approach”. It is a matter for concern that the Minister does not actually know what the other 11 projects in Europe are going to be about. He would not necessarily need a detailed understanding of all 11, but even if he knew what two or three of them were, it would be helpful. We should be looking to co-operate on these issues, rather than Britain trying to go it alone because we want to secure an international lead in these areas.

Malcolm Wicks: The earlier shrug of my shoulders—I do not know how a shrug is recorded in Hansard—was because I really wish there were 11 other projects I could detail to the Committee. We are ahead on this and, at one level, I am proud of that but, at another level, I am frustrated because we need to bring the European target of 12 into the real world. It will be our endeavour in the European Union to encourage that. I am unable, I fear, to detail even three or four because, as far as I know, the details of three or four are not actually there. We are, sadly, very far ahead, together with our colleagues in Norway who, while being close partners, are not actually members of the European Union. That is the reality.

Charles Hendry: I am grateful to the Minister, but I think this is an issue, above almost any of the others we have discussed, where international co-operation would have been sensible. We should have been looking at the technologies being developed in different parts of the world and we should have been co-operating on a post-combustion project in one area and a pre-combustion project somewhere else so that we could genuinely evaluate them.
The Minister asked on two interventions about the situation in China. To go to China and be able to say “We have mastered pre-combustion technology so please, in future, with your coal-fired power stations every week, look at doing it on a pre-combustion basis rather than a post-combustion basis” would have been a fantastic opportunity. So on both sides of this technology, there were major international opportunities for Britain in terms of trade and there were major opportunities for British science and British genius. We have narrowed things down in a way that is regrettable. My concern about the new clause is that, when we want to reconsider the issue and to have a project whereby pre-combustion could be made to work more effectively and be mastered, it would rule it out.

Paddy Tipping: The new clause has real relevance to my constituents and those who work in the coal industry at Welbeck and Thorsby collieries in Nottinghamshire. Those miners are the most efficient in Europe and have reduced costs. Burning coal is important economically as is getting the cost right to enter the market. It is important to burn coal in an environmentally sensitive way, which is what the new clause covers.
I understand that generators in the United Kingdom wish to replace some coal-fired power stations with new coal-fired power stations. When I last looked at matters, there were about a dozen propositions for new coal-fired power stations. To meet our environmental concerns and worries about carbon, those new coal plants must be more efficient and effective than they are at present. That is the substance of the new clause and our debate about carbon capture and storage, and the technologies that we need to introduce.
The matter is important nationally as well as internationally. As the Committee has recognised, in terms of the environment, it does not matter where a tonne of carbon is produced because it is still the same pollutant wherever it is. If we can therefore influence new design and new build in China and India, that will be important and significant.
The hon. Member for Northavon made a number of points, such as that clean coal demonstration plant post-combustion will clearly not be sufficient. The EU aspires to a dozen such plants and it makes sense, as the hon. Member for Wealden has just said, to have a real and meaningful discussion within the EU. I accept that the Government are in the lead, but there needs to be a realistic, rational discussion about using the 12 projects throughout the EU to develop other forms of clean coal technology—pre-combustion or post-combustion.
A lot of discussion has taken place about China. The Minister will know more about such matters than I do, but I remind the Committee that a new coal power station is being built in China at the moment with financial support from the EU. We are involved in the partnership to which the hon. Member for Wealden referred, and we need to do more of that because, if it is right that carbon capture and storage is a real new technology for the future, we must demonstrate it and bring forward the right sort of technology.
I am sceptical about carbon capture and storage; it has not been done yet. We can do it in the laboratory and we can do small-scale plants, but building a plant and making the science work is a big leap. I am not confident that we can do that in the time frame that is talked about, so it is important that we investigate as many technologies as possible.
Generators know that they must replace plant and generators know of the opportunities overseas. It is recognised that they are big international companies, such as RWE, E.ON and EDF Energy. None of them is British-based; they are European companies that operate internationally. They are not scot-free in respect of such issues. They recognise that coal has a place in the future, so they must invest, too. There is a rose-glassed view from the generators that the Government will take the total cost of clean coal technology, and carbon capture and storage. If the generators have an eye to the future, they should use their own profits, balance sheets and ability to borrow to go forward and be active partners. I should like to see the plea accepted that there be more than one demonstration plant in the UK. However, let us be realistic—that will not happen.
Companies such as Centrica, which last week announced enormous profits, must know that to invest in the future and to survive, they, too, have to invest in the new technologies, such as carbon capture and storage and clean coal technologies. It is not just a matter for the Government, but a challenge for us all. We need to set up partnership arrangements in the UK and internationally to ensure that that happens.

Brian Iddon: I will try to be brief. I do not envy the Minister or his advisers in setting up competition in this area because of the difficulties involved. First, there is pre-combustion or post-combustion capture of carbon dioxide. Secondly, there are gas and coal-fired power stations and possibly also oil, although that is unlikely. Thirdly, there is the difficulty of transporting the carbon dioxide after its capture.
Obviously, transporting carbon dioxide to the Scottish coast from the east or west midlands where some of the generators are will be far more costly than what BP was proposing, which was to build a gas-fired plant at Peterhead pretty much adjacent to the oil wells down which the carbon dioxide would be pumped. I have mentioned that one difficulty with the MARKAL analysis for post-combustion capture of carbon dioxide was that it did not appear to take into account the downtime of the plant while the retrofitting took place. I doubt that it has, but I wonder whether the MARKAL analysis has taken into consideration the length of transportation for the carbon dioxide from the point of capture to the oil wells off the Scottish coast. That will complicate the cost analysis extremely.
I wonder whether the transport of carbon dioxide is possible at the moment without putting new infrastructure in place. When we did the analysis, the assumption was that some of the gas lines that transport gas from the sea would become available because of the running down of gas provision from the North sea field and that those could be converted to transport carbon dioxide up the country to the very wells from which gas had been coming down the country to the consumers—whether they were generators or domestic consumers.
This is a terribly complex business and I do not envy the civil servants or their advisers in reaching a conclusion. In conclusion, I ask the Minister how many of those difficulties have been taken into account while he has been led to the judgment between post-combustion and pre-combustion carbon capture.

Malcolm Wicks: Again, this has been a very useful debate. I listened with great interest to my hon. Friend the Member for Bolton, South-East and I am grateful to my hon. Friend the Member for Sherwood for giving us a timely reality check on where we are in terms of this technology. I mentioned on another occasion that although there is some excitement about the bidding process and whether we should build two, three or four and whether they should be pre-combustion or post-combustion, those discussions are often not very financially literate. My hon. Friend the Member for Sherwood has given us the reality check that the whole chemistry set, as I think of it, has not yet been tried. Our demonstration project will be one of the first.
I will try to deal with many of the points that have been raised but, first, I remind the Committee that the Bill provides an enabling framework that will allow the safe storage of carbon dioxide offshore, paving the way for the wider deployment of carbon capture technologies. As such, it does not make provision for Government competitions or for CO2 storage demonstrations and it does not regulate the types of technologies that may be deployed via such competitions or the activity of carbon capture at all, as opposed to the activity of storage. In other words, the provisions in the Bill are technology-neutral for offshore carbon dioxide storage and for carbon dioxide capture. I hope that that gives comfort to those who are in favour of one technology rather than another.
I sometimes think that in a parallel world there might be a Government who have chosen pre-combustion storage, and I can now see the hon. Member for Northavon in that parallel world arguing passionately about the importance of post-combustion and how outrageous it is that the Government have ignored the realities in China—I jest, but only in part.
The Government already support a range of carbon capture technologies through a variety of means, including a £35 million fund to encourage industry-led demonstrations of elements that contribute towards carbon abatement technologies, including CCS; almost £9 million for various research projects supported by the Research Councils and the Technology Strategy Board; and pushing for the EU ETS to take account of CCS. The newly formed Energy Technologies Institute considers CCS as one of its possible future technology themes. With a potential £1 billion budget over 10 years, it is bringing together Government and some of the world’s biggest companies, with a view to accelerating the development of low-carbon energy technologies towards commercial deployment.
All those initiatives give equal status to all carbon capture technologies, exactly as the hon. Member for Northavon and perhaps other hon. Members have specified. I hope that he and the hon. Member for Cheltenham accept that the Government see CCS as a priority and are showing global leadership in facilitating its demonstration and deployment.
The only area in which the Government have made a deliberate choice regarding a capture technology relates to our competition for a demonstration project, and there are powerful reasons for having done so. The potential contribution that CCS technologies can make to tackling global climate change is significant. The Stern review estimates that CCS would contribute up to 28 per cent. of the global CO2 reductions that are needed by 2050 if the aim of restricting temperature increases to 2° C is to be achieved. We must remain focused on CCS as a global solution to climate change. For CCS to be deployed on such a scale, the technology first needs to be demonstrated on a commercial scale. That is why the Government are supporting one of the world’s first projects demonstrating the full chain of CCS technology in relation to a commercial-scale power station.
We considered carefully whether it was possible to run a competition that was open to all technologies, but we concluded that to run a fair and transparent competition, it was necessary to decide on the capture technology at the outset. It would be difficult to develop evaluation criteria that could fairly assess the different technologies against each other—each has different benefits. Our decision to focus on post-combustion capture technology in relation to a coal-fired power station will allow us to achieve the key objective of our demonstration project, which is to demonstrate a technology that is relevant and transferable to global markets. We need to ensure that actions taken in the UK can also help other countries to take steps towards tackling their emissions.
The arguments for examining CCS in relation to a coal plant are clear. Coal will remain a significant part of the world’s energy mix over the next decades. The recently published “World Energy Outlook 2007” projects that demand for coal will increase by more than 70 per cent. over the period from 2005 to 2030. China and India alone already account for more than 45 per cent. of world coal use and are projected to drive more than 80 per cent. of that increase in demand. In 2006, China built one coal-fired 1 GW power station every four days, which is equivalent to two new Drax 4 GW power stations every month.
The new build coal-fired power stations in China alone could emit about 260 megatonnes of CO2 each year, although that will depend on the type of power station being built and the rate of build. That is staggering when compared with total UK CO2 emissions in 2006, which were about 150 megatonnes. The ability for post-combustion technology to be retrofitted to existing power stations enables us to tackle such carbon dioxide emissions that would otherwise be locked in right now through existing and planned new build power stations.
It is important to recognise that pre-combustion technologies are used in conjunction with integrated gasification combined cycle power stations—IGCC power stations. These are not yet widely deployed, nor are they expected to be deployed for many years to come. For example, the “World Energy Outlook 2006” report says that between 2015 and 2030, IGCC will account for less than 20 per cent. of new capacity to be added globally. That is why early demonstration of post-combustion capture, which can be readily retrofitted, is so important for tackling global carbon dioxide emissions. Although I do not pretend to be an expert, I understand that it is far more difficult to retrofit pre-combustion.
I am confident that we have made the right decision in focusing the competition on post-combustion, and stand wholeheartedly behind our decision. The focus on post-combustion, however, is purely in the context of the competition. We recognise that all CCS technologies have a potentially significant role to play in helping to tackle climate change. That includes the use of pre-combustion capture technologies, which, as the hon. Member for Northavon said, could have an important role to play in producing hydrogen for emission-free transport.
In addition to the measures I outlined at the start, we are exploring a range of options aimed at promoting widespread deployment of all CCS technologies and hope, as I have said on a number of occasions, that UK companies will show the same enthusiasm and leadership in this area as has been shown by the Government to date. I noted the comments of my hon. Friend the Member for Sherwood on that issue of corporate and environmental responsibility.
The Government have been criticised for supporting only one commercial-scale demonstration project. Yet sponsoring one project alone represents a significant investment of potentially several hundreds of millions of pounds of public support, and a scale of commitment that only two other countries in the world have made. To say that the Government should be supporting two or three demonstrations is simply not realistic. We are doing more than just about any country in the world in this area, and we should be proud of that, not critical.
The UK truly is a global leader in this technology, but one country cannot tackle the challenges involved in making CCS commercially deployable. That is why, as I mentioned in the last sitting, we are working closely with other countries such as the US and Norway—I was asked by the hon. Member for Wealden about this—and through multilateral institutions to encourage others to make similar commitments. Indeed, I was discussing this with my Norwegian opposite number only a couple of weeks ago. It is only by doing so that we can help bring about widespread deployment within the time scales required to tackle global climate change.

Brian Iddon: I am now clear that this is coal only, and that it will be on an existing power station, but I am still not clear about what the competition will be based on. Will it be a cost analysis of the different projects, and will it include or exclude the transportation of the carbon dioxide?

Malcolm Wicks: It will include the whole project: the stripping out, in layman’s terms, of the CO2 , the transportation and the storage. It will have to include everything and, indeed, frustrating though it is, we anticipate that it might take a year or so for us to do the technical assessments required on the different projects coming forward to us. We will be doing a full appraisal.
Faced with those who say that the Government have made slow progress in our approach to CCS, I would say that the case is quite the contrary: The decision to launch a demonstration project was taken in May 2007. The competition to select a project was launched in November 2007, as we promised. We expect our demonstration to be operational by 2014. Only two other countries—Norway and the US—are currently committed to funding similar scale projects, both of which are likely to be operational within the same time frame. Rather than dragging our feet, we are actually sprinting ahead and leading the way.
Our competition for a post-combustion commercial scale demonstration project is already under way in line with our commitment, and would not be affected by the new clause. The new clause would have the perhaps unintended consequence of precluding any future competition that could be focused on pre-combustion technology, if it was determined to be necessary, given that the Government would have already supported the demonstration of post-combustion. Given what Opposition Members have said about pre-combustion, that would surely not be the intention of the hon. Member for Northavon.
In summary, while I have discussed issues that—

Steve Webb: Before the Minister sits down—

Malcolm Wicks: I was about to sit down, actually.

Steve Webb: He said “In summary”.

Malcolm Wicks: I know, but it is quite a long summary. I am happy to give way to the hon. Gentleman, but he will look at the clock as much as I do.

Steve Webb: The one specific thing that I do not understand about the competition, which is important in the context that we are discussing, is if one company wins and it learns everything that there is to know or a great deal that is of commercial value to it, is there any onus on it to share that with everybody else, or is it private knowledge? How does that process work? A competition with one winner does not, potentially, disseminate the technology. How do we ensure that the winner plays fair with everybody else?

Malcolm Wicks: That is a good point, and I do not have a crisp answer, except to say that we clearly need to balance concerns about intellectual property rights against the more important concern of knowledge transfer. Given all that I have said about China, knowledge transfer is the crucial thing here.
I will not be able to address the comments of one or two colleagues now, but I may find another opportunity of doing so. I understand hon. Members’ frustrations about where we are, but let us remember that, as my hon. Friend the Member for Sherwood said, this is brand new technology; not tried, not tested. We are ahead of the game. The Bill provides a regulatory framework that will enable the different technologies to come to fruition, but I make no apology for the fact that, in the demonstration project, for a number of different reasons, we felt that we should choose one technology. That was fair to some of the different companies that were coming forward, because developing proposals for competition is itself quite expensive. With that, and looking at the clock, I urge the Committee to support the clause.

Steve Webb: A lot of what the Minister had to say was explaining the case for the winner of the competition being post-combustion technology. My point was not that there was not a strong case for that, but that it is wrong to pre-empt it, so I am not sure that he addressed my point.
I asked the Minister to comment on the third technology, oxyfuel technology, which he did not mention at all. I asked him to comment on the go-slow on existing pre-combustion technologies, which he did not mention at all. He said that it was difficult to assess the relative merits of different technologies on a transparent basis, so the Government have done it on a non-transparent basis, by simply picking one behind closed doors. It seems that that must be inferior to inviting competing technologies, but I take the general observation that the new clause, without a sunset clause, might have undesirable effects. When the relevant time comes, I will not press the new clause.

Question put and agreed to.

Clause 20 ordered to stand part of the Bill.

Clause 21

Offence to carry on unlicensed activities

Question proposed, That the clause stand part of the Bill.

Malcolm Wicks: This clause is a particularly important clause, which I am pleased to have the opportunity briefly to introduce as the referee reaches for his whistle. It makes it an offence to carry on carbon dioxide storage activities without a licence. It also sets maximum penalties for an offence committed under the clause. The purpose of the clause is to ensure that any carbon dioxide storage related operations are carried out only by—

It being One o’clock The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at Four o’clock.